What Other Object but Inflation?

Southland Times, Issue 23943, 9 October 1939, Page 6

What Other Object but Inflation?

AFTER an all-night sitting, the Reserve Bank Amendment Bill was bludgeoned through the House of Representatives at eight o’clock on Saturday morning. It is doubtful whether the political history of any democratic country could provide a parallel to the manner in which this momentously important Bill has been passed into law. The Minister of Finance has said that it would have been introduced regardless of the war; yet it was not brought down until after the outbreak of war and until the very last hours of the session. Up till the final week, the business before Parliament had been of small consequence. Then, in rapid succession the Government forced through the House two drastic and far-reaching measures —one giving it a monopoly over the purchase and sale of any goods it may care to name, and the other establishing its complete authority over the Reserve Bank and removing the last safeguard against monetary inflation. These were measures of party policy which no Government worth its salt would have introduced at the last minute under cover of a wartime emergency for which it has bespoken the co-operation of all political groups and all sections of the community. During the debate on the Marketing Amendment Bill assurances were freely given by Mr Nash and Mr Fraser that the legislation would be reviewed after the war, but when the Leader of the Opposition moved an amendment to .this effect it.was rejected. The people of the Dominion, and in particular the many thousands whose existence is directly threatened by, the Bill, may draw their own conclusions.

Revaluation of Gold

In similar terms, during' the Reserve Bank Amendment Bill debate, Government speakers protested that the removal of the 25 per cent, minimum reserve requirement did not mean that they intended to follow the course of uncontrolled inflation. But what other meaning can it have? If Government, advances from the Reserve Bank are now near their statutory limit, as they are, they could be very substantially increased without varying the minimum reserve requirement—simply by the revaluation of the bank’s gold reserve as provided in the Bill. Valued at £3/17/10| an ounce, the reserve is set down at £2,800,000; revaluation at today’s market price would more than double this figure and would permit an expansion of advances to the State, which now stand at £16,800,000, by over £12,000,000. But this is not enough for the Government. The limitation of advances to four times the reserve of gold and sterling exchange has been swept away altogether. If this does not mean that the Government contemplates drawing on the Reserve Bank to the point of serious inflation, what does it mean? We have already referred to the Government’s failure to fulfil the undertaking, given in the Budget Statement, to moderate its demands on the bank and to the general lesson that is to be drawn from its reckless financial policy, which landed the country a few months ago in a position of virtual bankruptcy. Governments even in less embarrassing circumstances have preferred to inflate rather than face their difficulties, and have brought great distress upon their countries. There is nothing in the record of the present Government or in the disclosure of its intentions during Friday’s debate to suggest that it will not follow the same course and bring the Dominion to the same unhappy fate.